Up-to-the-minute advice, information, resources, and, on occasion, commentary on federal and New Jersey state income taxes, and the various New Jersey property tax rebate programs, and insights and observations on tax policy and professional tax practice, by 40-year veteran tax professional Robert D Flach.

Thursday, June 27, 2013

THE DEATH OF DOMA

I was watching Ellen DeGeneres’s talk show while having a late breakfast
at the County Café in Beach Lake yesterday morning when the program was
interrupted to report on the Supreme Court decision on the Defense of Marriage
Act (DOMA).An odd coincidence, don’t
you think?

“. . . it wasn’t so much
about the individual rights of folks to marry but the rights of states to write
their own laws defining marriage”.

The decision did not say that same-sex marriages should be legal,
or that same-sex couples have a legal right to marry.It says that the federal government has no right
to deny benefits to same-sex individuals who have married, and reside, in a
state that has legalized same-sex marriage.

What is unclear is what happens if a couple that was legally
married in a state that has legalized same-sex marriage moves to a state that
has not.

As with anything else, I first look at the decision from a federal
tax point of view.How will it affect my
1040 clients?

When it comes to the federal Estate Tax the decision is a true
victory that will benefit same-sex couples.It allows same-sex couples who are legally married and reside in states
that permit same-sex marriage to be able to take advantage of the Estate Tax unlimited
“marital deduction”.

Kelly’s post refers to an estate tax example that was cited in
the decision -

“Edith Windsor, a resident
of New York, married Thea Spyer, her partner of 40 years, and that marriage was
recognized by the state of New York. However, Spyder’s estate was required to
pay more than $363,000 in federal estate taxes at her death because the federal
government did not recognize same sex marriages.”

But what about the federal income tax?As a result of the decision same-sex couples,
again who are legally married and reside in states that permit same-sex
marriage, will be able to, as Jason points out in his post, “prepare their federal and state tax returns
as a married couple, using married person tax law, same as any other married
couple”.

This will very likely generate income for the US Treasury.Jason explains -

“Will all same-sex couples
pay less in income taxes because of this ruling? NO, not necessarily. In my
practice, 2/3 of my clients who are in same-sex marriages will actually PAY
MORE in income taxes by filing as a married couple rather than as two single
people.”

Why?Because of the “marriage
penalty”.While there will be some
same-sex couples who will now be able to take advantage of the “marriage
benefit” on their 1040s, I do believe that more often than not a same-sex
couple consists of two working “spouses” – more so than “traditional” married
couples – and the couple will now end up paying much more in federal income tax
than when they filed as two single individuals.

In my own practice I do not expect this decision to really have
any effect.Most of my clients are from
New Jersey.While NJ has provided for “domestic
partnerships” and “civil unions”, it has not gone “all the way” and legalized
actual same-sex “marriages” - and I expect the decision applies only to what is
identified under state law as “marriage”.I do have some New York clients, but none are, or will become, same-sex
couples married under NY state law – and I do not accept any new 1040 clients.

“I suspect it will be two
months (maybe more) before the IRS is ready to accept such returns.”

Although, to be honest, I am not sure why – unless the IRS
computers can identify the sex of files from the Social Security numbers and
will not accept same-sex married returns.To download the decision click here.

As an aside – I do believe that television shows like WILL AND
GRACE and MODERN FAMILY are partially responsible for the widespread acceptance of same-sex marriage and for this decision being
possible.Television can change the
world!

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